bankruptcy current monthly income
Keep car loan for better credit or not?
I went through a bankruptcy in 2005, but have had 3 seperate car loans through my credit union since that time. They have been so helpful, and I am grateful for them. My % rates went from 16% to 8% on the current one ($12,500/4 years). The previous two were for $3-5k, and I paid them off in full when I sold the cars.
Here is the question-I didn’t keep either loan for more than a year, and they said that it didn’t affect my credit score greatly because of that reason. If I had kept the loan running for over a year, it would have been better. Now, my current loan started last July, and I would like to drop the $300 monthly payment and drive something cheaper for now. How much will this really affect my credit score? If I keep the loan just over a year and sell the car to pay off the loan, won’t my debt-income ratio be much better than if I had the open loan?
It takes between 3 and 6 months for the loan and your first couple (on-time) payments to show up on your credit report. That is why they said that keeping the loans for so short a period didn’t shift your score. Internally though, the bank monitors all the payments and records them as on-time or late (under 10 days and over 10 days).
Lenders use the credit score to determine your interest rate kind of like a grid. Score in one row and amount borrowing in another row determine the interest rate. However a bank can override this grid if you are a returning customer and have a good record with them on their own accounts. They don’t want to lose your business!
If you want to get something cheaper, now would be a good time. If you can do it without going “upside-down” in the new car loan.
However, once you get the new car loan make AT LEAST 18 payments (not 18 months, 18 payments) before you trade out of it. This will give you a good, solid, established track record of on-time payments and jump your score.
Hope this information helps! I used to sell cars and I worked closely with the finance department to close loans and help people with recovering credit.
Good luck to you!
